Big Relief for Dharma Productions as Bombay HC Rejects Rs 79.7 Crore GST Demand Over Digital Film Licensing:

The Bombay High Court has ruled that a cinematographic film cannot be treated as information technology (IT) software under the GST law simply because it is delivered through a digital link or hard disk.

The court said that the way a film is delivered or transferred cannot decide its tax classification. What matters is the nature of the content itself.

A bench of Justice M S Karnik and Justice Sandesh D Patil passed the order on September 10 while hearing petitions filed by Dharma Productions Pvt Ltd and Dharmatic Entertainment Pvt Ltd.

The case involved the licensing of copyrights in cinematographic films. The tax authorities had classified these transactions as information technology software services under SAC 998340, which attracted 18% GST during the period under dispute.

The tax department had raised a demand of around Rs 79.7 crore for the financial years 2017-18 to 2020-21. It argued that since the films were supplied through digital links or hard disks, the transactions should be treated as IT software services.

The production companies challenged the demand before the Bombay High Court. They argued that the transactions involved licensing intellectual property rights in cinematographic films and should instead fall under SAC 997332.

This classification covers licensing services for the right to broadcast and show original films, sound recordings and television programmes. During the relevant period, it attracted 12% GST.

The Bombay High Court accepted the companies' argument and held that a cinematographic film does not become IT software simply because it is delivered digitally.

The court therefore set aside the disputed tax orders and the Rs 79.7 crore GST demand against the companies.